Even though the broader market underwent its steepest correction in nearly two years to begin 2022, optimists have been rewarded handsomely for their patience. No matter how many crashes or corrections the market endures, history has shown that the major U.S. indexes tend to increase in value over time.
But just because iconic indexes like the Dow Jones Industrial Average and S&P 500 rise over time, it doesn't mean every stock will be a winner. Based on a wide gamut of Wall Street price targets, select analysts and investment banks foresee the possibility of these ultra-popular stocks crashing in 2022.
Image source: Getty Images.
Tesla Motors: Implied downside of 65%
There might not be a more popular stock with a wider range of expected outcomes from Wall Street than electric vehicle (EV) manufacturer Tesla Motors (TSLA 12.06%). In one column are a small handful of investment banks calling for the EV giant to reach $1,400 (or more) over the next year. In the other column is JPMorgan analyst Ryan Brinkman, who, even after recently upping his firms' price target on Tesla, expects shares to plummet 65% to $325.
This wide variance of Wall Street price targets for Tesla looks to be a reflection of the company's existing competitive advantages and innovation battling against constant delays and its lofty valuation.
In terms of the former, Tesla still offers clear-cut competitive edges in the EV space. While the company's Battery Day presentation in 2020 was perceived as lackluster by Wall Street, it nevertheless highlighted the power, capacity, and range advantage the company holds over other EV producers.
Tesla also has the capital and infrastructure necessary to significantly expand its output. Keeping in mind that roughly 750,000 EV deliveries was the expectation at the beginning of 2021, Tesla managed to deliver more than 936,000 EVs by year's end. Mind you, this delivery increase takes into account the semiconductor chip shortages and supply chain issues the entire auto industry has been contending with.
But Tesla isn't alone in the EV space. There are a bevy of established automakers with deep pockets, plenty of existing infrastructure, and well-known brand names, which'll give the EV kingpin a run for its money. This is a cyclical industry that's historically been valued at a mid- to high-single-digit price-to-earnings (P/E) ratio. Thus, Tesla's triple-digit P/E ratio hasn't sat well with some fundamental purists.
What's more, the company has a long history of overpromising and under-delivering. This isn't to say that Tesla and CEO Elon Musk don't deserve credit for a number of innovative EVs and solutions. Rather, it's to point out that the timeline when products are expected to debut rarely comes to fruition. For instance, the Cybertruck will, at minimum, be delayed by at least two years from its forecast launch date.
Although Tesla is the first automaker to build itself from the ground up to mass production in more than five decades, it still has a lot to prove.
Image source: Getty Images.
Bed Bath & Beyond: Implied downside of 41%
Another ultra-popular stock that could be primed for a crash in 2022, according to Wall Street, is home furnishings retailer Bed Bath & Beyond (BBBY). Bank of America Securities analyst Jason Haas has walked down the company's price target a couple of times, with the latest forecast calling for $9.50 a share. Considering that Bed Bath & Beyond closed above $16 last weekend, we're talking about an expected drop of 41%.
Though shares of the company are well off their 52-week high, they've effectively quadrupled from their pandemic low. There look to be two reasons for this bounce. To begin with, the company has predominantly remained profitable despite challenges in the brick-and-mortar retail space.
The other catalyst has been retail investors. Bed Bath & Beyond became part of the meme stock movement in 2021 and was heavily targeted by retail buyers hoping to catch a short squeeze.
While even I, at times, have been a fan of the company's turnaround efforts, Haas's price target does give credence to the numerous challenges Bed Bath & Beyond is facing. In no particular order, the company is dealing with:
- Supply chain concerns caused by the pandemic.
- Historically high inflation that's pinching already razor-thin margins.
- Increasing competition from online retailers that have lower overhead and an easier pathway to undercut Bed Bath & Beyond on price.
According to Haas, even with the company adding new fulfillment options, promoting direct-to-consumer sales, focusing on brand loyalty, and selling noncore assets to bolster its balance sheet, there's still a good chance its sales will lag over the next two years. Based on the comparable sales decline of 7% the company delivered in the November-ended quarter, Haas's skepticism may well be warranted.
The all-electric Ford F-150 Lightning. Image source: Ford.
Ford Motor Company: Implied downside of 33%
Take solace, Tesla investors, because you're not alone. According to analyst Adam Jonas of Morgan Stanley, Ford Motor Company (F 0.08%) could crash to $12 in 2022. This implies it would lose an additional third of its value after shedding over a quarter of its market cap since Jan. 14.
A recent research note from Jonas laid out the multiple reasons for his bearishness on Ford. This included the expectation for higher input costs, growing competition in the EV space, a cyclical mean reversion for the entire auto industry, and investors having unrealistic expectations for EV scaling, even in a post-pandemic environment.
Among the points hit by Jonas, supply chain concerns and inflation would appear to be the most troublesome. Chip shortages clearly hurt Ford's production volume last year, and rapidly rising new and used vehicle prices could send buyers to the sidelines. In the very near term, Jonas' thesis may hold some water.
But over the longer run, I believe Ford to be an exceptionally inexpensive company that has a multidecade growth opportunity on its doorstep. Ford's more than a century of brand history, as well as its existing infrastructure, will help it transition to become a key EV player in the U.S. and China over time.
Additionally, the company's F-Series truck (specifically the F-150) has been the top-selling truck in the U.S. for 45 straight years, and more importantly the best-selling vehicle, period, in the U.S. for 40 years. This type of dominance and brand loyalty will translate positively as Ford beefs up spending on EVs in preparation for rolling out 30 new EVs globally by 2025.
The price is also right with Ford. Shares can be purchased for less than nine times forecast earnings for 2022. With a sustainably strong growth opportunity fueled by EVs, Jonas' bearishness can be taken with a grain of salt by long-term investors.
